Watch the Q4 – 2024 CFO Address To Unitholder
Transcript
00:19 — Wayne Byrd:
Hello, everyone. I’m Wayne Byrd, Chief Financial Officer at Skyline. Today, I’m excited to share our latest quarterly results and highlight the key trends that shaped our REITs and Clean Energy Fund over the past year.
I’d like to note that all numbers are quarterly and performance benchmarks are year-over-year unless stated otherwise. Now, let’s just dive into the details.
To start things off, let’s take a close look at the performance of our Apartment REIT.
The Apartment REIT closed 2024 with a portfolio fair value of $5.06 billion, marking a 1.05% year-over-year increase. While we streamlined our portfolio from 244 to 235 properties, strategic sales and strong appraisal valuations drove overall growth. The financial strength was reflected in our funds from operation (FFO), which reached $22.29 million, exceeding our 12-month pro forma adjusted quarterly forecast average of $21.42 million.
At the same time, Skyline Apartment REIT generated $53.82 million in net operating income (NOI), soundly beating the 12-month pro forma adjusted quarterly forecast average of $50.05 million. NOI margin came in at 56.30%, which was comfortably above both quarterly and yearly projections.
Occupancy remained strong at 94.6%, while average monthly in-place rent increased to a 2024 quarter high of $1,504 per unit, an increase of over $110 on the year, with a $352 mark-to-market gap. Fully capturing it could increase unit value by $22.00 over time, a 74.58% rise from the current $29.50 unit value. At a 20% annual turnover rate, we expect to realize most of this value within eight to 10 years, if trends persist.
Reflecting this strong performance, on November 19, the Board approved a 3.5% unit value increase from $28.50 to $29.50, driven by strong performance, growth, and strategic initiatives. Year-to-date unit value has risen from $27.75 to $29.50, including the Q2 increase of $0.75.
At 27.6 cents, the distribution per unit held steady and consistent with previous quarterly payouts.
Looking forward, we expect average monthly rent growth may slow in some markets due to a reduction in population growth, but should remain resilient overall, given the nationwide housing shortage. The REIT may continue enacting strategic dispositions to modernize the portfolio and increase its overall margin profile. Lower Bank of Canada policy rates are expected to support economic growth and improve tenant affordability in 2025.
Now, moving over to industrial. Our Industrial REIT closed 2024 with a portfolio fair value of $1.78 billion, marking a 6.71% increase from a year ago. The number of investment properties increased to 51 from 50, and there are eight development projects currently in the pipeline. FFO registered $11.44 million, above our 12-month pro forma adjusted quarterly forecast average of $10.84 million.
In Q4, NOI generated was $24.39 million, surpassing the 12-month pro forma adjusted quarterly forecast average of $23.68 million. NOI margin closed at 69.4%, a quarterly high in 2024.
Occupancy held steady at 98.4%, a 20-basis-point decline over the previous year. Average annual in-place rent rose to $9.35 per square foot, a quarterly high in 2024. Overall, base rental revenues rose to an all-time high of $7.82 million, backed by strong underlying fundamentals in the metrics I just described, along with strong renewal rates and top-line rental growth as expiring leases roll over.
Unit value held steady at $22.75 in Q4, up from $22.50 year over year. The annual distribution increased by $0.025 for all classes of units, raising the distribution yield in each class by 0.11% on a quarterly basis.
Looking forward, Skyline industrial REIT fundamentals remain relatively strong. Expected interest rate cuts should support tenant growth, but near-term leasing activity may be tempered by uncertainty around tariffs through Q3 2025.
If trade relations stabilize and Canada avoids major disruptions from potential U.S. tariffs, the industrial real estate sector could see renewed momentum, potentially unlocking pent-up demand as the year progresses.
On the retail side, during the last 12 months, Skyline Retail REIT undertook a limited strategic disposition program of certain tertiary assets to reinvest those proceeds in more accretive opportunities. The REIT finished 2024 with a portfolio fair value of $1.59 billion.
The portfolio was streamlined from 115 to 107 properties through this initiative, which focused on the sale of certain smaller non-grocery and [non] pharmacy-anchored assets, aligning with the REIT’s strategy to unlock gains and reinvest in higher growth opportunities within the portfolio.
In Q4, NOI was $22.57 million, surpassing the 12-month adjusted quarterly forecast average of $22.46 million. NOI margin finished at 60.6%.
The committed occupancy rate maintained a portfolio high of 98.7%, while average annual in-place rents rose to $19.78 per square foot, setting a yearly high.
Leasing spreads (the difference between expiring rents and renewed rates) stood at a record level in Q4, ending the year at 10.35%. These factors were key in driving base rental revenue to a record $8.32 million, with steady growth across all four quarters.
While unit value held steady at $15.50 per unit throughout the year, the Board of Trustees approved a $0.25 increase this year on January 25, raising it to $15.75 per unit. The annual distribution amount remained consistent across all unit classes.
Looking ahead, fundamentals in essential retail remain strong, supported by our rising occupancy rate and record leasing spreads. We believe this segment is less sensitive to the effects of tariff policy and economic downturns, given its focus on consumer essentials, a consideration for investors in upcoming quarters.
In 2025, our focus [is] on maximizing the potential of our 5.2 million square foot national portfolio of essential retail-anchored assets through proactive asset management, combined with the addition of select income-accretive acquisitions, while continuing to evaluate the opportunity to realize gains and recycle capital with the strategic disposition of some non-core properties.
Now, to our Clean Energy Fund.
The fund ended Q4 with approximately $380 million in total assets under management.
The fund continued to deploy its 2024 strategy by making capital improvements to both the biogas and solar portfolios, and [is] seeing the benefit of increased electricity and biogas production.
On October 1, the unit value increased from $16.98 to $17.20, contributing to a double-digit return in 2024. Following the quarter, on January 1, 2025, the fund’s board of trustees approved an additional $0.45 unit value increase to $17.65 per unit, resulting in a trailing 12-month return of 9.46%.
Looking forward, new feedstock contracts for the Elmira, Ontario and Lethbridge, Alberta biogas plants are set to boost organic waste processing volumes in 2025. At Lethbridge, the depackaging line capex (capital expenditure) project is anticipated to deliver increased tonnage and revenues above initial projections.
Additionally, progress continues on Elmira’s renewable natural gas (RNG) expansion project alongside lobbying efforts to expand the investment tax credit to include biogas projects. If successful, this could yield 20-30% savings on the Elmira project and future initiatives.
Now, let’s examine how our managed portfolios have returned on a historical basis.
Skyline Apartment REIT Class A returns:
1-year: 10.52%.
3-year: 9.24%.
5-year: 15.99%.
10-year: 14.49%.
Since inception: 13.81%.
Skyline Industrial REIT Class A returns:
1-year: 6.61%.
3-year: 16.67%.
5-year: 16.57%.
10-year: 16.17%.
Since inception: 14.6%.
Skyline Retail REIT Class A returns:
1-year: 8.31%.
3-year: 9.01%.
5-year: 10.33%.
10-year: 12.47%.
Since inception: 11.99%.
Skyline Clean Energy Fund Class A returns:
1-year: 9.46%.
3-year: 10.05%.
5-year: 9.22%.
Since inception: 9.00%.
Canadian public REITs returns:
1-year: 3.01%.
3-year: -5.11%.
5-year: 1.11%.
10-year: 5.71%.
Since inception: 7.47%.
Canadian bonds returns:
1-year: 4.12%.
3-year: -0.69%.
5-year: 0.69%.
10-year: 1.82%.
Since inception: 4.16%.
Canadian equities returns:
1-year: 17.82%.
3-year: 5.07%.
5-year: 7.65%.
10-year: 5.53%.
Since inception (1979): 8.45%.
2024 inflation (CPI, Consumer Price Index): 2.40%.
As we celebrate 26 years in business, our commitment remains stronger than ever to delivering value for our investors while making a lasting impact in the communities we serve. Staying true to these principles has been key to Skyline’s success, and it’s the foundation of how we operate.
Amid uncertainty from potential U.S. tariffs, we reiterate private REITs’ stable valuations unaffected by daily market sentiment or equity index correlations subject to our public peers. This is our value-add to investors in these volatile times.
Thank you for joining us today. We look forward to keeping you informed with timely updates in the future.